The prices of apartments and rents have been falling for years, but this year they will go up again

The prices of apartments and rents have been falling for years, but this year they will go up again
The prices of apartments and rents have been falling for years, but this year they will go up again
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According to the latest data from the Real Index ranking of the consulting and technology company Deloitte, the average realized sales price of apartments in the Czech Republic fell in the third quarter for the fourth time in a row. This time by 1.8 percent to 89,300 crowns per square meter. At the end of the year, for the first time in the last 11 years, the prices of new buildings in Prague fell year-on-year, when they returned roughly to the values ​​of the beginning of 2022. Experts from various institutions offer several reasons for predicting that this was only a short-term phenomenon and that the price curve will turn again this year .

Developers lowered prices last year also because they needed to encourage people who hesitated to buy their own homes due to expensive mortgages. Their strategy worked. From the point of view of real estate companies, the last months before the new year were the most successful in the last two years.

According to data from developers Central Group, Skanska Residential and Trigema, 1,300 apartments were sold in the capital in the past three months. For the whole of last year, it was about four thousand. This is 900 more apartments than the builders sold a year earlier.

A tenant pays an average of 470 crowns for one square meter in Prague 1, and 194 crowns in Ústí nad Labem.

“The increase in sales can probably be considered a turnaround in the buyers’ previous waiting tactics,” says Petr Hána, director of the real estate and construction department at the consulting company Deloitte. “However, compared to previous years, when the demand for apartments massively exceeded the supply, developers have to invest much more in marketing and other sales events. And that won’t change for some time.” Sales were also affected by the planned VAT change from the beginning of 2024. From January, the VAT on most new apartments is 12 percent instead of the original 15.

The increase in demand was also helped by discounting, which the developers started after the interest of buyers fell to several-year lows at the end of 2022 and remained at them even in the first months of last year. For example, cheap and unfurnished apartments went on sale, buyers also received discounts for paying for the property in advance by a certain date.

Prices will rise, the market will stagnate

However, according to developers and some experts on the real estate market, the trend of cheaper apartments will not last long, and prices will return to growth this year. After all, a hint of their optimism can also be seen in Deloitte’s Develop Index, which shows that the offer price of apartments rose slightly in the fall. Deloitte reports the latest data for October, when the price was 152,600 crowns per square meter, half a percent more than it was at the end of August. The data of the aforementioned trio of developers show similar figures even at the end of the year. Such small differences in the statistics can also be caused by details – for example, they are caused by more expensive projects that go on sale at that very moment.

The persistent lack of supply is contributing to the rising prices of apartments. In recent months, about 5,500 new apartments have been available in Prague, and their number is not growing any further. To give an idea, between 2015 and 2021 between five and 7.5 thousand apartments were sold per year.

“A smaller number of apartments have been put up for sale in the last year than before. Part of the supply is being drained by the growing rental housing market,” said Marcel Soural, chairman of the board of the investment group Trigema.

He also recalled the ongoing complications surrounding new construction, especially the complex and protracted permitting processes. Obtaining a building permit should speed up the new construction law, which is due to come into force in July. Although the Ministry of Regional Development assures that this will happen, developers are concerned about the possible worsening of the situation due to, among other things, difficulties in preparing for the digitization of construction procedures.

“Even in the future, the supply will not grow to the long-term proclaimed 10,000 new apartments per year, which will bring with it further price growth, not only on the primary market,” added Soural. The builders themselves also contributed to this, when they postponed the preparation of new projects due to little interest from buyers and expensive building materials. Although some have already started work again, part of the market is still waiting. Among other things, they are held back by increasingly expensive loans.

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Rents fell, but only briefly

Those interested in rental housing also experienced at least a slight relief at the end of last year. After two years, rent growth stopped for the first time. In some regional cities, rents even fell compared to the summer.

However, according to experts, tenants should not rejoice too much, because this decline will not last long and the growth trend will not change just like that. “It can be expected that the slight price correction is a short-term phenomenon and at the beginning of this year the rental market will return to moderate growth,” said Hána.

The reason is obvious – there is still an increased demand on the market due to the poorer availability of owner-occupied housing. Roughly a fifth of the Czech population lives in rented accommodation. Despite the fact that people still prefer to own apartments and houses, this number may increase in the coming years due to expensive real estate. After all, landlords, brokers and advertising websites report that there are now dozens of applicants for one rental apartment.

The increased demand for rental housing was also reflected in the fact that for the whole of last year, rents increased by an average of seven percent. According to data from consulting firm Deloitte, the average monthly rent across the Czech Republic was 292 crowns per square meter in the fourth quarter. Renting a studio apartment with a size of 30 square meters thus cost 8760 crowns.

These average data are inherently biased, as individual regions often differ substantially from one another. While a tenant pays an average of 470 crowns for one square meter in Prague 1, the same area in Ústí nad Labem costs 194 crowns.

Self-confirmation bubble effect

As a recent survey by the Institute of Sociology of the Academy of Sciences shows, the rise in apartment prices and rents may have one more reason – it is essentially a self-fulfilling prediction. According to the survey, more than half of Czechs think that apartment prices and rents will increase this year. At the same time, expectations do not correspond to how people see the development of the economy.

When it comes to the unemployment rate, for example, the majority of respondents (45 percent) expect it to increase in the next year. This should theoretically lead to a drop in housing prices, but people expect the opposite. It is similar, with exceptions, with other items that the researchers asked about. “It supports the assumption that it is primarily people’s expectations, and not the development of indicators such as economic growth or the unemployment rate, which as a result can lead to an increase in housing prices,” says economist and sociologist Petr Sunega from the Institute of Sociology of the Academy of Sciences.

According to him, the consequence is that people make decisions not according to real developments and real signals from the economy, but according to their ideas and how it was in the past. “Conditions are being created for the growth of a price bubble. People decide on housing investments under the impression that prices will rise ‘infinitely’, so they are willing to buy apartments and houses even in situations where prices are raised high and do not reflect income, economic growth or interest rates,” the expert pointed out.

The article is in Czech

Tags: prices apartments rents falling years year

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